What Is Rate Lock?
A rate lock freezes your mortgage-rate for 30–60 days (or longer for a fee). When federal-funds-rate and mortgage-rate are rising, a rate-lock protects against increases before close. Cost: typically 0.25–0.5 points or built into rate. Interest-rate-cycle timing matters—lock when Fed is hiking. Refinance rate-lock protects when mortgage-rate is volatile. If rates fall after lock, you may pay a float-down fee to capture the lower rate.
A rate lock is an agreement with a lender to freeze the mortgage-rate for a set period—typically 30–60 days—protecting the borrower from mortgage-rate increases before closing when interest-rate-cycle or federal-funds-rate is rising.
At a Glance
- What it is: Agreement to freeze mortgage-rate for 30–60 days
- Why it matters: Protects when mortgage-rate and federal-funds-rate rising
- Cost: 0.25–0.5 points typical, or built into rate
- Duration: 30, 45, 60 days standard; longer for fee
- Float-down: Some lenders allow one-time float-down if rates fall
How It Works
Mechanics. Borrower and lender agree on mortgage-rate and lock period. Rate is guaranteed for that period. If close is delayed beyond lock, borrower may pay extension fee or re-lock at current (possibly higher) rate. Interest-rate-cycle and federal-funds-rate drive mortgage-rate—lock when Fed is hiking.
Cost. Lock fee: 0.25–0.5 points (0.25–0.5% of loan) or built into rate. Longer locks (90 days) cost more. Extension fee if close delayed. Float-down: some lenders allow one-time drop if rates fall—fee may apply.
When to lock. Federal-funds-rate rising = lock early. Interest-rate-cycle peak = lock before further hikes. FOMC meetings—lock before if hike expected. Refinance: lock when mortgage-rate is favorable and interest-rate-cycle suggests rates may rise.
Real-World Example
Jacob locked rate-lock on a refinance in March 2022. Mortgage-rate 4.5%, 60-day lock. Federal-funds-rate was rising—Fed hiked 0.25% in March, 0.5% in May.
By close (May 2022), mortgage-rate was 5.5%. Rate-lock saved 1% = $250/month on $300,000 loan. Interest-rate-cycle timing paid off.
Pros & Cons
- Protects when mortgage-rate and federal-funds-rate rising
- Refinance and purchase both benefit
- Interest-rate-cycle and FOMC timing
- Leverage and DSCR certainty at close
- Cost: 0.25–0.5 points or built into rate
- If rates fall after lock, you miss the drop (float-down may help)
- Extension fee if close delayed
- Lock too early = pay for protection you may not need
Watch Out
- Timing risk: Lock too early = pay for protection; lock too late = miss the rate
- Extension: Close delays can trigger extension fee or re-lock at higher rate
- Float-down: Check if lender offers; fee may apply
- FOMC: Lock before FOMC meetings if hike expected
Ask an Investor
The Takeaway
Rate lock freezes mortgage-rate for 30–60 days. Protects when federal-funds-rate and interest-rate-cycle are rising. Refinance and purchase both benefit. Cost: 0.25–0.5 points typical.